Tech Industry

How soggy french fries help Twitter make money

Twitter is trying to diversify its revenue sources beyond advertising, and one way is to license its data to businesses that might find it useful -- like deep-fryer makers.

Adam Bain, Twitter's president of global revenue, discusses how the company makes money at Web Summit in Dublin.
Adam Bain, Twitter's president of global revenue, discusses how the company makes money at Web Summit in Dublin. Stephen Shankland/CNET

DUBLIN, Ireland -- Four years ago, Twitter started making money the way many Internet companies with free services do, by selling advertising. Now it's got a new revenue stream: soggy french fries.

Advertising remains at the center of the social network's business, based on people sharing terse, 140-character messages. But Adam Bain, Twitter's president of global revenue, described two new businesses launched this year in a talk here at the Web Summit tech conference. One of them is e-commerce, and the other is selling access to Twitter's data to companies that think that data will help them with their own business.

That second category is where the soggy fries come in. Bain was surprised when a maker of $50,000 industrial deep-fryers wanted to license Twitter's data. It turns out that tweets about soggy fries could reveal where the company's customers weren't maintaining the fryers properly, Bain said. And not only that -- the company could show the tweets to those customers as "social proof" that there's a problem that needs to be fixed.

Bain cited other examples of the business: hedge funds are guiding trading based on Twitter sentiment analysis, and health companies are seeing if they can track disease spread across borders. Twitter hopes to find more data-licensing customers through a partnership with IBM, a former Twitter patent foe, whose consultants now are able to encourage their clients to use the service.

Making money has been a big issue for Twitter, and critics have jabbed the company for taking too long to convert its popularity into money. The ad business helped, but going public one year ago only increased the scrutiny.

There's been progress, though. Twitter last month reported its second straight quarter of profit -- $7 million excluding items like stock-based compensation. And Twitter's user base grew to 284 million.

As is fashionable in tech circles these days, Twitter aspires to change the world, not merely achieve financial success.

"We think of revenue like oxygen. It's necessary for life but it's not the reason to live," Bain said, quoting Twitter Chief Executive Dick Costolo. "Amazing companies build products to change and touch the world. That's been the story line for Twitter. We hope to touch every single person on the planet, and revenue is a byproduct of it."

Even if making money is secondary, it's Bain's job. "One thing I'm most excited about is the revenue diversification," he said.

Twitter ads

The data licensing business is real, but the advertising business has been around longer.

There, Twitter offers "promoted tweets" folded into the stream of tweets that Twitter users see.

"We could have brought banners or a disruptive ad experience," but chose to use promoted tweets that fit natively in the Twitter world instead, Bain said. "Ads look, act and feel just like regular content. You can retweet it, you can favorite it. That yields amazing advantages. Consumers that retweet ads with reckless abandon are passing messages virally on behalf of those advertisers." That means more impact for advertisers, but in a method that "respects the users in a pretty important way."

Web Summit is a tech conference in Dublin, Ireland. Stephen Shankland/CNET

Twitter deliberately set up its auction process for placement of promoted tweets to encourage a good fit with Twitter itself. Winning that auction isn't just a matter of paying more than other bidders, Bain said.

"It's also the engagement rate around the ad. There's a financial incentive for the advertiser to provide good content," Bain said. "There's an economic advantage on Twitter ads for advertisers to be good, not just to be loud."

E-commerce, too

Twitter's e-commerce revenue is the least mature of the three sources, Bain said, calling it just an "incubator" project now.

"There's a big distance between discovering a product and making a purchase," he said, referring to all the steps that separate interest in a product from looking it up online, finding a place to buy it, and closing the transaction. "We decided to shrink that distance."

E-commerce is a potentially large revenue stream, even if Twitter is only taking a small fraction of transaction prices in fees. Analyst firm Emarketer estimates that in 2014, businesses worldwide will sell consumers $1.47 trillion worth of goods and services, a 20 percent increase over 2013.

Twitter launched a , and it's got a partnership with payment transaction processor Stripe. Now it's experimenting with pricing and the best ways to work with its users' emotions.

"With one click you can purchase a product right from the platform," Bain said. "The best thing about Twitter is that it's a live in-the-moment platform. We think there's a huge opportunity for live commerce right now."